Investment

The following is a description of a model for securing
private, as opposed to public, investment. The material presented on
this page does not constitute an offer to sell, or a solicitation of
an offer to purchase.

Investment Philosophy

We are taking an unconventional approach to investor
participation. Our approach is based on a number of considerations:

The recent history of corruption within the traditional venture
capital profession

Our own unsatisfactory interactions with the venture capital
community

A fundamental conflict with the venture capital profession
regarding the means by which wealth may be acquired

The nature of our engineering model, which is based on openness,
fairness, and free competition on a level playing field

The new possibilities presented the Internet, which now provides a
genuinely open, egalitarian, competitive forum for almost anything

Recent events and changes in how investment relationships are
being conducted, indicating that the hegemony of the traditional
closed investment model is now being broken

For all these reasons we are electing not to pursue the conventional
approach to investment, which permits control and exploitation by the
traditional investment community. During early-stage private
investment the conventional approach permits excessive control and
exploitation by venture capital investors. Later, during the transition
from private to public investment (i.e. at IPO stage), the
conventional approach permits domination, control and exploitation by
the triad consisting of venture capitalists, investment bankers, and
large institutional investors. In the traditional model this triad of
middlemen profits mightily at the expense of all other players,
including the company being invested in, and the individual public
investor.

Instead, we are taking an approach which cuts out these traditional
middlemen completely. We are taking an approach which is open,
egalitarian, and permits participation by any interested and qualified
investor. In these pages of our website we present our thinking and
philosophy regarding investment, and we describe the new model we are
following.

Corruption within the venture capital profession

There is nothing wrong with the principles of venture
capital. According to these principles, great things can happen when
money is invested in the right ideas and the right people. Great
things get built, society benefits, and wealth is created. This is a
positive-sum game, in which everyone wins.

And certainly, there are plenty of examples of this principle in
action. Federal Express, Cisco Systems and Sun Microsystems—all of
these and many others are examples of how venture capital investment
can create benefits and wealth for everyone.

Unfortunately, the recent history of venture capital does not conform
to this rosy picture. During the dot-com frenzy between August 1995 and
March 2000, the venture capital industry indulged in an orgy of
investment in thousands of companies that had no real prospects of
success at all. Such companies had no credible ideas, no credible
people, and no credible assets. Hundreds of these companies were taken
public, and almost all of them subsequently went bankrupt. Within
three years of the peak of the dot-com frenzy nearly 5,000 Internet
companies on the Nasdaq had been either acquired or gone out of
business.

These companies built nothing of value, contributed nothing to
society, and created no wealth. Taking into account the enormous
financial and human resources that were wasted in these abortive
ventures, participation in these companies was, overall, a
negative-sum game.

Nevertheless, despite the fact that these companies represented a net
financial loss, they made enormous fortunes for a privileged few. How
is this possible? The answer is easy: the privileged few made it, not
by the creation, but by the redistribution of wealth. In other words,
they took it from someone else.

The VCs participated in a scheme in which empty companies were taken
public, their stock prices hyped up to enormously inflated levels, and
the overpriced stock unloaded on an unsuspecting public. The VCs
participated in a classic spin-and-flip scheme. Whether any laws were
technically broken is open to dispute. But there is no question that
in principle, the venture capital community perpetrated a gigantic
fraud on the public.

The effects of such a colossal breach of trust are not easily washed
away. Though the Internet bubble is now behind us, its effects on the
venture capital community live on. We believe that there continues to
be a secret yearning in the hearts of venture capitalists for the good
old dot-com days, when enormous profits could be made, essentially by
theft. We believe it will take quite some time for the psychological
effects of this obscene, profiteering frenzy to die away.

Until such time as the venture capital industry takes part in process
of genuine, honest self-examination and public accountability, it will
remain fundamentally corrupt.

Our own experiences

Our own experiences with the venture capital community are fully
consistent with this viewpoint.

We have been consistently disappointed with the quality of our
interactions with these companies. We have shown up to meetings at
which the VC participants clearly have not taken the trouble to
carefully read our Business Plan or other supporting materials. The
Business Plan is "too long," we have been told; a comment that reveals
more about the reader than the plan. "Just make it simple for us," we
have been asked. For a company considering a multi-million dollar
investment in an industry-building venture, this bespeaks an
astonishing intellectual laziness. One might as well complain that the
plans for building the space shuttle are "too complicated." Or that a
musical score contains "too many notes."

And we have been disappointed in the lack of intellectual integrity
that has frequently attended our interactions with VCs. We present
ourselves in forthright and honest terms to any potential
investor. However, we have often not received the same consideration
in return.

Our conclusion is that the VC community continues to be intellectually
and ethically compromised by an insidious spin-and-flip mentality.

But what we are doing does not conform to the spin-and-flip model. We
are not twenty-something dot-commers with a PowerPoint presentation
and not much else. We are experienced engineers and businessmen, and
what we are doing is big, complex, and real.

On our side, we show up to a meeting ready to face tough challenges
about absolutely any aspect of our engineering or business plans, and
we don't expect any coddling. Neither do we offer any. We show up
expecting our opposite numbers to have done their homework; when we
find that they haven't, we are ready to make our displeasure
known. When we disagree with someone elses analysis, we challenge
it. If we ask questions that we feel are not properly answered, we
persist in asking them.

The experience of having an entrepreneur talk back is something that
VCs seem to find extraordinarily difficult to deal with.

In any event, whether as a result of our failings or theirs, our
meetings with VCs have repeatedly devolved into shouting matches, and
have concluded with us being escorted off the premises.

We point with pride to the fact of having been thrown out of the
offices of some of the most prestigious high-technology venture
capital companies in the Pacific Northwest.

Both we as entrepreneurs, and venture capitalists as investors, are in
business for the same reason: to make money.

The basic conflict between us is how we go about making it.

A review of the websites of most venture capital companies reveals a
list of "success stories"—investments made in companies that
subsequently went public, or were acquired by another company. All of
these made money for the VCs and are therefore considered
"successes."

But close examination of these lists of success stories reveals
something further. Almost invariably, they include companies that fall
squarely into the class of ventures that made money not by the
creation, but by the redistribution of wealth. Let us be quite clear
what this means: it means they made money by theft.

Some of the VC websites also include some wry self-deprecation about
the "ones that got away"—passed up deals that subsequently made
millions for someone else. However, there is no self-deprecation at
all about the spun-and-flipped companies that made money for the VCs
while building nothing of value, contributing nothing to society, and
creating no genuine wealth at all.

If you succeed in making money while creating nothing of value, then
your gain is someone else's loss. This is true if you running any type
of scam; it is true if you are running any type of con game; and it is
true if you are a VC running a spin-and-flip operation. If no wealth
is created, you are playing a zero sum game.

A successful spin and flip operation requires cooperation by the
entrepreneurs. A venture may initially be conceived by the
entrepreneur as a geniune wealth-building project. However, once a VC
enters the scene this presumption must be dropped. Depending on the
entrepreneur's sophistication it may be dropped knowingly or
otherwise; and depending on his integrity it may be dropped willingly
or otherwise. But dropped it must be.

When a VC is re-tooling a venture as a spin and flip play, any effort
exerted by the entrepreneur to create something of value only gets in
the way. The effort required from the entrepreneur is to assist in
spinning the story, not to create something real. If the entrepreneurs
are attempting to build something worthwhile, then they and the VCs
are inherently in conflict.

The entrepreneurs are required to play the role of support staff to
the VCs. Regrettably, there is no shortage of professional engineering
entrepreneurs who are quite willing to play this role. This may be out
of venality, or it may be out of naiveté. More likely, it is out of
venality masquerading as naiveté. When money is at stake, people are
that much more willing to allow themselves to be manipulated. And when
money is at stake, there is no limit to people's ability to deceive
themselves.

We at Neda want to make money, but we want to do it the right way. We
want to do it ethically: by creating something of value that people
will pay for. And this places us in fundamental conflict with the VC
profession.

To achieve our business goals, in the scope and scale defined in our
Business Plan, we require the participation of investors. But we are
seeking investors who clearly understand the difference between making
money by selling something of value, and making money by theft.

Our engineering model

All our engineering constructs are based on freedom, openness,
accessibility, and choice. We are strong proponents of open-source and
free software. We are advocates of patent-free protocols. Our initial
strategic project is Operation WhiteBerry, the creation of a truly
open mobile messaging industry. Beyond that, our goals are the
creation of a subscriber services industry based on Libre Services, a
completely free and open subscriber services model.

This does not mean, of course, that we must also necessarily follow an
open investment model.

However, the investment model that is most consistent with our
corporate culture is one that has similar characteristics of openness
and accessibility.

The effect of the Internet

From dating, to buying a used car, to finding an apartment, the
Internet allows highly efficient market-making among large numbers of
individuals. In general the role of the intermediary, or broker, is
becoming increasingly irrelevant.

The relationship between entrepreneurs and investors, though with its
own unique set of hazards, is not unlike many other types of
relationship that have been revolutionized by the Internet. Like the
relationship between any two groups of interacting parties, that
between entrepreneurs and investors can also benefit from free access
to the pool of potential partners, good information, and efficient
communication.

We believe that the Internet can play a similar role in bringing
together the right entrepreneur and the right investor.